Economics of War

By Garda Ghista

Introduction
For the past century, human beings had the agricultural capacity, the technology and the organizational skills to feed every last person on the planet.  Yet, marching along into the 21^st century, 80 percent of the world’s population lives in absolute poverty - economically defined as missing one or more of the five fundamental necessities of life, i.e., food, clothing, shelter, health care and education. Millions of people have died of neglect, disease, malnutrition and starvation.  In large part they have died because precious funds went instead to feed the war machine, also called euphemistically as ”military expenditures” or “milex.”  More recently these costs are referred to not even as military expenditures but as “defense expenditures.”  This change was wrought in 1947 when the extant Department of War was renamed to Department of Defense.[1]  George Orwell referred to these nefarious terminological twists as “doublethink” and “doublespeak.”

The driving force behind the Cold War, which was continued by Ronald Reagan through the 1980s and continued to the extreme with 9/11, was fear. If a government can manage to instill high levels of fear into the populace, that government can do anything it wants, in the name of alleviating that fear.  Hence the American people always said ‘yes’ to wars.  

Professor Chalmers Johnson, formerly of the CIA, describes the present Pentagon as an alternative government, with control over 725 official military bases around the world and scores more unofficial bases. In addition, the Pentagon runs the Army, Navy, Air Force and Marine Corps, plus has huge stockpiles of weapons of mass destruction that could wipe out our planet in a moment.[2]    American military expenditures (milex) are huge.  These expenditures reflect a gigantic waste of man, money and material. 

According to Doug Dowd, the socio-economic importance of milex can be measured two ways: (1) the percentage of milex to GDP, and (2) the percentage of milex to total federal government expenditures.[3]  Dowd says both these figures are routinely understated. The official percentage of milex to GDP is about four percent.  In reality, he says, the figure is more than ten percent. 

John L. Boies, in his thorough analysis of milex, says that if we assume “the share of the US debt resulting from security expenditures is equivalent to the share of on-budget expenditures to national security,” then we conclude that “since 1948 national security and national security-related interest on the debt has absorbed 57 percent of state resources.”[4]

The War Economy in Theory
Does war help or hurt an economy?  Numbers reflect that in previous wars such as World War I and World War II, the American economy was benefited. It received a boost. However, these figures seem to be changing, partly as a result of advanced technology. Paul Poast, in his book Economics of War (2006) has created the term, Iron Law of War, which states that war is good for the economy.[5]  The logic is that in order to fight a war, the government must raise an army and produce weapons. Both these actions mean thousands or hundreds of thousands of jobs, either directly in the army, air force or marines, or in corporate factories producing weapons ranging from cluster bombs to weapons of mass destruction.

There are two prime effects of war.  People get scared, and war is expensive.  The fear in the general population leads to decreasing consumer confidence and hence reluctance to spend money.  Corporations also become hesitant to spend, unless they are directly in the munitions or other war-related business.  This causes the economy to initially slow down. However, statistics show that soon after the onset of a war, the people tend to forget, and again begin to purchase goods and services, driving up the consumption level back to normal. These statistics, however, are based on wars which all occurred overseas on other continents, thus making it relatively easy for Americans to forget that the war is still taking place, particularly with the complicity of the media.

The other real effect of war is its cost. The cost comes in the form of military expenditures (also referred to as ‘milex’) and manpower, in the form of several hundred thousand soldiers to physically fight in the war as well as thousands employed to produce the requisite weaponry.   Thus, if we take the standard macro-economic theory Y = C + I + G (X – M), where Y = national income, C = consumption, I = business investment, G= government spending, and (X-M) = net exports, we will see an initial decline in C but a growing increase in G due to milex.

Poast lists four points to help us determine the cost of war, i.e., its real effects on the economy.  They are (1) the state of the economy prior to the onset of war, (2) the location of the war, (3) the extent of the mobilization, i.e., manpower and weapons, and (4) the duration of the war, the cost, and how the war is financed.[6] 

At this time, the Gross Domestic Product (GDP) is the best measure of the well-being of a particular nation’s economy.  If an economy is sluggish, then according to Keynesian economics the government can step in and start spending in order to raise the GDP, also equal to Y, or national income.  This can be done by starting new public works projects such as road construction, dam construction, national parks, etc.  This can also be done by the purchase of munitions for war, which is referred to as Militaristic Keynesianism. If there is unemployment before a war, the government will justify starting a war as it will supposedly have the effect of leading to full employment.  The drawbacks are that Militaristic Keynesianism can lead to production shortages due to high government and continuing public demand. As a result, companies will raise their prices to slow consumption, hence causing inflation.  Inflation damages economies by diminishing people’s purchasing power.  If prices rise and salaries do not rise, the common people are no longer able to buy the same quantity of goods as previously.  Likewise, banks / creditors need to maintain purchasing power of the nominal interest rate on moneys loaned. The value of this interest rate goes down when prices increase.[7]  If this inflation is anticipated, workers and creditors can plan accordingly. However, if it is unanticipated, then it will have a negative impact on the economy.

The location of the war is a critical factor in its effect on the domestic economy. If country A invades country B and the war is fought in country B, then it will wreak economic devastation on country B. Europe was ruined by both world wars.  Distant wars in country B may or may not affect the economy of country A. If, for example, oil supplies are disrupted causing a rise in oil prices, it can have a severe effect on the economy of country A, because as oil prices rise, GDP falls.  In contrast, a war in country B can boost the economy of country A if, for example, the war causes a bigger demand for weapons. During World Wars I and II, the US exported iron, steel and coal to Europe, which helped bolster the US economy. 

A war’s cost is a direct result of the war’s length.  Table 1 shows the cost of six American wars: World War I, World War II, Korea, Vietnam, Persian Gulf and the present Iraq war.

Table 1
Cost of Major Wars to the United States

War	Duration	Total Direct Cost	GDP in final war year	Total GDP during war period	Cost as % of GDP in final war year	Cost as average of GDP per year
		In billions of current year dollars	In billions of current year dollars	In billions of current year dollars		Total cost/total GDP during war period
World War I	2 years	26	71.3	128	36%	20%
World War II	4 years	288	218	923	132%	31%
Korea	3 years	54	380	1375	14%	4%
Vietnam	10 years	111	1383	9677	8%	1%
Persian Gulf	8 months	61	5917	5917	1%	1%
Iraq	3 years +	10/mo  120/year	N/A	N/A	N/A	N/A

Source through Persian Gulf:   Paul Poast, Economics of War, McGraw-Hill-Irwin, 2006

Source for Iraq costs:   Jonathan Weissman, Washington Post, April 2006

We need to know also how the wars are financed.  They can be financed by government borrowing (via war bonds), raising taxes, cutting non-military spending (for example, education and social service programs such as Medicare and Medicaid), and creating money (printing more currency, increasing bank reserves, or receiving reparations (for example, stealing iraq’s oil and calling it reparations). Of all these possibilities, money creation is the most common.  The growth of money supply invariably peaked during each American war.   The inevitable consequence of printing more currency is inflation – an increase in prices, as represented by M (supply of money in the economy) multiplied by V (the velocity of money, or the number of times in a year money is spent) equals Y (goods produced in a given year) times P (how much each of the goods cost). Hence we have M*V = P*Y, also called the ‘quantity theory of money.’[8]  Hence following this equation, as M rises, then P will also have to rise.

The fourth point in determining the cost of war is the factors of production, meaning land, capital (machines and factories), and labor that are used in producing war supplies.  During war, the government may claim land for factory construction or nationalize companies to control production of war goods.  There are two types of resources:  physical resources and labor.  The first is physical resource mobilization. However, if those resources are for war purposes, then their production may not stimulate the economy, in contrast to consumer/civilian goods, which do stimulate the economy, as those goods produced in turn cause the purchase of more goods by consumers.  

Labor resource mobilization means the percent of the population in the military and the drop in the unemployment rate.  If there is an increase in government military spending, factories will have to produce more, which will mean workers putting in overtime pay and new workers being hired.  More workers going into the military can be good for the economy as it frees up jobs for new workers. On the other hand, it can be harmful if no one is available to immediately fill those jobs, leading to allocational inefficiency.  Statistics indicate that with each war, the percentage of population in the military has declined.[9]

Another cost of war that economists take into consideration is the economic value of the soldiers who die.  The value of a soldier’s life is generally calculated by the amount of money he would have earned had he remained alive and lived out the rest of his life.  W. Kip Viscusi at Harvard Law School estimates the value of one blue-collar male worker in 2000 to be $7.5 million.[10]

War economy in reality – case studies
Let us take a brief look at the 20^th century to see how well the Iron Law of War applies to American wars.  Interestingly, throughout the 20^th century the US had a strong economy. Second, all wars were fought somewhere else.  No US wars were fought on US territory.   If we look at World War I, World War II and the Korean War, the Iron Law of War seems to work.  The US economy thrived. However, in looking at later wars, specifically the Vietnam War, the 1991 Persian Gulf War and the 2003-present Iraq-Afghanistan War, the Iron Law seems to have stopped working.  The Iron Law of War only works when a country – in this case the US – has slow economic growth and low use of resources before the war, when there are large government expenditures during the war, and when the war is not on US soil, when it is of relatively short duration, and when it is financed in a responsible manner.[11]

In the first three wars, there was a recession before and after each war.  In the years preceding World War I, the US had gone through four recessions in the period 1902-1914.  Merely the threat of war in Europe created confusion and fear in the minds of the public; hence, GDP shrank by 7.6 percent in 1914.[12] 

World War I
Up until the first World War, the United States was primarily an agrarian economy. During World War I, its economy grew substantially due to a growing trade balance – an increase in imports and exports, with a large quantity of exports in the form of iron, steel and coal, used to supply the war in Europe. While the US economy practically flourished during the war, the economies of European nations suffered severely, as reflected in a steep rise in CPI by the year 1918 for Austria, Germany, Belgium, France and U.K.[13]

The cost of the war came close to 36 percent of US GDP by 1918, averaging to 20 percent of GDP for each year of the war.  The war was financed primarily by the ratification of the 16^th Amendment which adopted income tax as a means to subsidize the war.  Second, the government issued Liberty Bonds that were purchased by banks and by individuals. The revenue generated also went to cover the costs of war.  During World War I, government expenditures rose to 20 percent by 1918, as the hitherto agrarian economy converted to a war economy.  The government seized the railroads and standardized them under one gauge to ensure that war materials reached Europe on time. Millions of government dollars went into building ships that went directly to Europe. A large dam was constructed on the Tennessee River to harness the requisite power for nitrate extraction, used in fertilizer but also in explosives. Thirty percent of vehicle production switched from automobiles to tanks for the war.  Farmers increased agricultural production during the war; hence, with more jobs in farming and factories, the percentage of unemployed went down to 1.4 percent.[14]  However, this upsurge in agricultural and munitions/ weapons production was only temporary. Once the war ended, agricultural production was reduced and hundreds of factories engaged in war production became idle. It led to a recession, and then to the Great Depression, about which books are still written today.  The conversion from a war economy to peace economy was too difficult, and many Americans faced utter destitution and starvation.

World War II
The economy before World War II, based on the average real GDP growth rate of 7.9, seemed stable. However, unemployment was still at 15.9 percent in 1940.[15]  World War II was once again fought elsewhere – in Europe, Asia and Northern Africa; hence, the US economy was unaffected. Rather, the US trade balance and specifically exports improved radically during the war as the US sold countless weapons to allied countries. The war cost to the U.S. was 130 percent of GDP in 1945, which averaged to 31 percent of GDP for each year of the war.  The budget deficit rose from 3.0 percent in 1940 to 30.3 percent deficit in 1944.[16]  Due to several Tax Acts passed during that period, income taxes increased so as to help cover the costs of the war.  As individual taxes could not cover such a deficit, the government created more money to pay the debt. Prices remained fixed during the war, which gave scope for people to purchase war bonds – another source of government revenue. The Federal Reserve also participated by printing more money, lowering interest rates and purchasing government bonds.

The physical resource mobilization during World War II was massive. Before the onset of war the American economy was a free market economy. Once the war started, the federal government centralized nearly every aspect of the economy, by instituting price controls, rationing of essential items, and by purchasing half of what was produced in the US.  This began even before the onset of American participation, as the government had already been selling weapons to its allies since 1940. Britain purchased weapons from the US and paid for them by transferring $2 billion in gold.  The Lend-Lease Act of 1941 allowed the British to borrow $50 billion of weapons from the US government with the expectation that those weapons would be returned to the US after the war.  The federal government during World War I produced only 35 tanks. However, during World War II it produced 88,430 tanks, reflecting a phenomenal growth in weapons and munitions production. In terms of numbers of people, before 1939 the US Army had less than 140,000 troops. By 1942 it had more than nine million troops.[17]   This huge number of people engaged in the war drove the domestic unemployment percentage down to 3.92 percent by 1945. The average annual real GDP was 11 percent between 1941 and 1945. Inflation moved from –1.4 percent in 1939 to 7.9 percent in 1946.  These figures tell us that Poast’s Iron Law of War was in full force. It also tells us that inflation is an inevitable accompaniment to war.[18]

Korea
The average GDP in the two years before the onset of the Korean War was a mere 1.88 percent. Unemployment was at 5 percent. Inflation was negative - -1.2 percent.  In June 1950 North Korean leader Kim Il-Sung invaded South Korea with the backing of the Soviet Union and with the aim of re-uniting the peninsula, which had been split during World War II.  The US, for its own geo-politically strategic reasons, occupied South Korea to fight against the “invasion” of Kim Il-Sung’s troops.  The total cost of the Korean War was 14 percent of the US GDP in 1953, coming to 4 percent of GDP annually.[19] President Truman financed the Korean War through taxes and by reducing the non-military government expenditures.  Throughout the war, both individual and corporate income taxes rose. As a result, the US budget deficit by 1953 was the lowest of any of the six wars discussed here.

According to Poast, the resource mobilization for the Korean War played a decisive role in constructing a permanent military-industrial complex in the US.  As an example, the year 1951 saw a 110 percent growth in military expenditures – a figure not matched since.  Raising taxes in a substantial manner kept a strong economy stronger during the war. The real GDP growth averaged 6.2 percent each of the three years of fighting. The short duration of the war helped to make the increased taxes bearable to the people. By 1953 unemployment was down to 3.61 percent.  Once again, the Korean War supports the Iron Law of War as well as the inflationary side effect of wars.

Vietnam
Vietnam is the first war that does not fit the Iron Law of War.  The economy was strong in the US in the early 1960s, partly due to the plastics revolution, highway construction and the NASA space programs.[20] The real GDP was 4.18 percent and the unemployment rate averaged out to 6.10 percent. The location of the war was restricted to Vietnam, hence the US economy was not shattered by local physical destruction of life and property.  However, during this extended ten-year war, military expenditures were just one percent of GDP, and in contrast to earlier wars, nonmilitary spending rose substantially during the Vietnam War due to the creation of new social programs by President Lyndon Johnson. From 1967 onwards, the Pentagon began to supply numbers of war costs. In 1968 the cost peaked at $23 billion along with a peak in troop deployment, which peaked that year at 534,700.[21]  While initially President Johnson was reluctant to raise taxes, by 1969 the Tax Reform Act was passed, which restricted the tax-exempt status of foundations and raised individual income tax. Despite these measures, the budget deficit remained at –2 percent of GDP.  As a result of monetizing the debt, inflation rose to as high as 5.5 percent in 1970.[22] 

The mobilization of soldiers to Vietnam was gradual. After one and a half years 185,000 troops had collected.  However, by 1966 there were 385,000 troops, and by the end of 1967 there were 535,000.  During the Vietnam War unemployment dropped, reaching 3.5 percent. But, primarily because of the war’s long duration, the post-war period of the 1970s saw the “Great Inflation.”[23] 

1991 Persian Gulf War
The US economy prior to the Persian Gulf War was somewhat unstable because of large government deficits from the 1980s and low consumer confidence. The Consumer Sentiment Index (CSI) fell from 97.9 in 1989 to 93 in 1990. When Iraq invaded Kuwait, the CSI fell still further to 76.4. The real GDP growth was slow.

The location was once again far removed from American land, but was critical in determining global oil prices.  While the US receives 24 percent of its oil from the Middle East, the oil coming from the region has a major impact on global prices.  Hence, war disrupts oil production and prices go up.  Interestingly, these figures do not include the continuous daily bombing that took place in northern and southern Iraq after the Gulf war with regard to maintaining the no-fly zones.  The financing of this war was unique, in that it was paid for almost entirely by other countries. President George H.W. Bush had a United Nations mandate to go to war, and therefore allies Germany and Japan, while they did not participate for constitutional reasons, funded the war to the tune of $44 billion.  Kuwait and Saudi Arabia paid $9.5 billion towards the costs. 

The cost of the Persian Gulf War came to one percent of US GDP in 1991, or $60 billion. $31.5 billion was spent during combat, and another $30 billion was spent shipping troops and equipment back to Europe or the US.[24]  In reality this war did not end, due to the continuing enforcement of the no-fly-zone on Iraq by the US and UK, so as to protect Iraq’s neighbours and minorities, the US and UK created no-fly zones in both northern (Kurdish) and southern Iraq. Iraqi planes were not allowed to fly over these zones. In addition the United Nations levied economic sanctions on Iraq so as to halt the development by Saddam of weapons of mass destruction.  This continuing battle, called ‘containment’ in economics textbooks, would amount to another $13 billion per year.  If the US had not invaded Iraq in March 2003, these containment policies would have cost the US an estimated cost of another $300-$400 billion over the course of the next 30 years.[25] 

In the Persian Gulf War the resource mobilization was minimal.  More than 250,000 troops amassed in the Middle East just prior to August 2003.  Military expenditures were low, with government spending increasing only slightly and milex comprising only one percent of GDP.  And in contrast to previous wars, unemployment increased during this war. The Iron Law of War no longer applied.  With consumer timidity, the economy moved from sluggish to a recession.[26]

Iraq War 2003 – present
In the present war in Iraq and Afghanistan, and potentially in Iran, we will again see that the Iron Law of War does not apply.  Prior to the onset of war in March 2003, the US economy was slow, with a real GDP growth of 1.8 in the second quarter of 2002, 3.3 percent in the third quarter, and 1.5 percent in the fourth quarter.[27]  Furthermore 30 percent of production capacity in the US was unutilized, in contrast to a normal level of 15 percent non-utilization; thus, the economy was not growing enough to combat unemployment, which rose from 4 percent to 6 percent just prior to the onset of war.  These factors caused the CSI to fall from 86.7 in 2002 to 77.6 in March 2003.[28] 

While the war was again far from American borders, it was again in the geo-politically strategic oil-producing countries. Oil prices rose this time, not just due to the US military buildup but also, according to Poast, because of political wars in Nigeria and Venezuela.  In addition, oil traders were afraid that Saddam would set his oil fields on fire, as he had done to Kuwait oil wells when leaving the country in defeat.   These combined factors drove the price of oil to more than $40 per barrel.[29] (As of April 25, 2006, the cost has risen to $70 per barrel.)

Even before the invasion of Iraq in March 2003, the US military expenditures had risen sharply due to the prior invasion of Afghanistan combined with new homeland security programs.  Hence, defense spending was already more than 60 percent of milex in 1997, which was an increase of $120 billion. Only part of these billions went directly to the Iraq war. Much of the balance remains unaccounted for. Hence, budget projections for the Iraq invasion and war have varied greatly. 

The war costs from March 20, 2003 until May 1, 2003 were from $28-$30 billion.  This included $11 billion for moving troops and equipment to the Middle East along with housing and feeding those troops and maintaining military equipment. Nine billion was spent for the first three and half weeks of conflict, $5-$7 billion on returning troops and equipment, and another $2 billion for combat in the final two weeks of April.  However, Bush’s declaration on May 1, 2003 that the war was over turned out to be a sham.  Instead US forces remained as occupying forces and the war escalated at a cost of $4-5 billion a month or a total of $52-65 billion by the end of June 2004, at which time the US government claimed that Iraq had regained its sovereignty.  But this was another sham statement by the Bush administration. Instead costs continued to climb with $100-120 billion spent by December 1, 2004.[30] According to Jonathan Weisman of the Washington Post, as of April 20, 2006, US government spending in Iraq and Afghanistan has reached $10 billion a month, as calculated by the Center for Strategic and Budgetary Assessments.

While these costs averaged out to 1 percent of US GDP in 2003, there are other cost factors to consider.  Prior to the onset of the Iraq War, the Congressional Budget Office estimated that it would cost $27 billion. However, the Center for Strategic and Budgetary Assessments predicted a cost of up to $699 billion.  William Nordhaus of Yale University included additional factors such as the reactions of oil traders and potential losses to the economy. His estimates in 2002 ranged from $99 billion to $2 trillion,[31] figures that would be determined by the duration of the war and its impact on oil prices.  Interestingly, the recently published report entitled  “The Economic Costs of the Iraq War: An Appraisal three Years after the Beginning of the Conflict,” by Professor Joseph Stiglitz (Columbia University) and Professor Linda Bilmes (Harvard University) corroborate the latter figure of Nordhaus.  In his final book, The Economics of Innocent Fraud, John Kenneth Galbraith says that in the fiscal year 2003 itself, nearly half of total US government discretionary expenditure was used for “defense.”[32]

a.         Cost of War or Cost of Containment
After the Persian Gulf War, the US and UN imposed economic sanctions on Iraq, which in fact turned out to be devastating to the people.  In addition, the US and UK maintained a no-fly zone over northern Iraq (inhabited by the Kurd minority) and southern Iraq (inhabited primarily by Shiias). Iraqi planes were not allowed to fly over these two no-fly zones. This dual containment policy included monthly operating costs, depreciation of equipment, 30.000 troops, 30 ships, and 200 planes, coming in total to around $13 billion annually.[33] If suppose the US had continued this containment policy and not committed an illegal war of invasion, then the cost of that containment policy, stretched out for another 30 plus years, the cost would come to more than $400 billion.  But is it a likely scenario? 

b.         Financing the Iraq war
How has the Bush administration financed the war in Iraq? It started out by implementing tax reductions in 2001/2002.  As with the first few years of the Vietnam War, this is making the funding problematic.  The difference between the Vietnam and Iraq wars is that President Johnson substantially expanded domestic social welfare programs.  In contrast, Bush has slashed welfare programs left and right, while at the same time having a fixed policy of tax reductions, from which the wealthy benefit maximally. 

As regards resource mobilization for the Iraq war, there are substantial differences from the Vietnam war.  Today the military requires fewer soldiers and fewer weapons due to more advanced technology.  An example would be the Tomahawk cruise missile. In the Persian Gulf war, this weapon cost $1 million.  In Iraq, even with upgrading, it costs today only $20,000.[34]  Another difference is that technological spillover is reversed. In previous wars, military technology benefited the civilian society. Today, the military is benefiting from technological research coming from the private sector.  For example, the Abrams M1 tank functions using a laptop and is very much like a video game.[35]

While some claim that military personnel requirements are less than in earlier wars, but in fact, in the Iraq war reservists and National Guardsmen have been called up for duty, and furthermore have had their tour indefinitely extended. In addition, as we learn from the Stiglitz report, there is widespread use of American mercenaries as well as private contracting companies bringing men from third world countries to fight this war. Those countries include India, Chile, Uruguay, Columbia, and Nepal, to name a few.

The calling up of reservists and National Guard units has had a moderate to severe effect in their home communities, as they have lost police officers, nurses, teachers, and other professionals, who played a vital role in sustaining those communities before leaving for Iraq.  In contrast, some states have benefited from the war. Washington, D.C. has gained 42,000 jobs in 2002 alone, with an unemployment rate of just 3.5 percent. Unisys Corporation in Virginia hired 900 new employees. Northrop Grumman Corporation in Los Angeles added 6,000 new employees. General Dynamics Corporation added 250 jobs to help fill new orders for the Stryker assault vehicle.[36]  Without a doubt, weapons and munitions companies have benefited from this war, as they do in any war.  An example would be Richard Blum, the husband of Senator Diane Feinstein, who partially owns the munitions company URS Corporation. In 2003, the company received an Army contract worth $600 million, and will receive an estimated $3.1 billion over the next eight years.[37]

MSNBC Chief economics correspondent Martin Wolk recently commented that the cost of the war in Iraq could exceed $1 trillion.  Before the US invaded Iraq, the White House estimates for the cost of this war were very low – a tiny fraction of the GDP and a fraction of the cost of earlier wars. Only White House economic advisor Lawrence Lindsey, in an interview with the Wall Street Journal in 2002, predicted that the costs could run to $200 billion.  The White House quickly distanced itself from this figure and Lindsey was dismissed soon thereafter. Later in 2004 Defense Secretary Donald Rumsfeld predicted the war would cost around $50 billion and further surmised that Iraq would pay a large part of that cost.[38]

The figure of $200 billion has long been reached as direct costs in the war effort.  Indirect costs have not been calculated, but estimates range from $400 billion to $2 trillion.[39]  Yale University Professor Nordhaus’ extensive estimate was made in 2002, before the invasion.  In January 2006 the Congressional Budget Office (CBO) gave the figure of $323 billion in expenditures for the war on terrorism, which includes both Iraq and Afghanistan.  In the week of March 17^th, 2006 the House approved another $68 billion for military expenditures, which brings the total direct costs to date to $400 billion.   The Pentagon spends about $6 billion monthly on the Iraq war, or $200 million each day, as per the CBO.[40]  In February, 2006 University of Chicago economist Steven Davis put the cost of the war at $410 billion to $630 billion.  However, Stiglitz and Bilmes predict a far higher cost: $1 trillion to $2 trillion, with $500 billion for the direct costs of the war and another $300 billion for future health care costs to wounded soldiers.  He also includes the negative impact of rising oil prices. [41]

According to Davis, the cost may be acceptable, particularly when faced with the option of continuing the prior containment policies (economic sanctions and maintaining the no-fly zones) which he predicts would have come to $14.5 billion a year for a long time.  He gives the figures of containment as costing even $350 billion to $700 billion in the future.[42]  Davis further claims that there will be economic benefits to Iraqis in the long run, which according to him will offset the 180,000-300,000 civilian deaths that have occurred since the forcible regime change in 2003. [43] Niko Kyriakou, in her recent article “Nobel Laureates Join Call to End Iraq Occupation,” has put the figure of dollars spent in Iraq at $251 billion as of December 30, 2005, as per Stiglitz, while the US continues to spend $200 million a day or more than $138,000 every minute. Kyriakou also provides the most recent estimate of 180,000 dead Iraqi civilians and about 100,000 wounded.[44]

Mark Engler also takes a look at just how costly this war in Iraq is becoming.  He points out that in the most recent budget Bush submitted to Congress, which includes $440 billion for the Pentagon, it does not even include military expenditures in Iraq and Afghanistan.  This amount will be covered in a separate request of $120 billion.[45]   Also, a major difference between the Gulf War and the Iraq War, as pointed out earlier, is that allies paid for most of the Gulf War. In the case of the Iraq War, as it was never authorized by the UN Security Council, and is hence an illegal war of aggression, there are virtually no allies aside from the UK, and certainly no allies helping to pay the costs. 

In August 2005, Phyllis Bennis and Erik Leaver at the Institute for Policy Studies presented a paper, which posited that at the current rate of spending - $5.6 million per month – the total cost could come to $700 billion in US direct expenditures in Iraq and Afghanistan.  Again, as per Weissman, these numbers have nearly doubled as of April, 2006.

Stiglitz-Bilmes Report
In February, 2006, Joseph Stiglitz, based at Columbia University, and Linda Bilmes at Harvard University, projected a far greater cost for this war – up to $2 trillion.  The figure includes both direct and indirect costs to the United States. It does not include costs to the people of Iraq.  Aside from calculating the direct expenditures, Stiglitz and Bilmes move on to include the “value of statistical life” for every soldier killed, and the cost of lifelong medical treatment, often involving round the clock bed care, to thousands of wounded US soldiers who, while being blown into many pieces, remain “alive” thanks to advanced technology health care not available in earlier wars. The Bush administration never talks about these costs. The figure of $500 billion ignores the lifelong disability costs and healthcare costs that the American people will have to pay for over the next several decades. Stiglitz told Der Spiegel in a recent interview that the compensation for a dead soldier is $500,000. In contrast, if the same soldier walks across the street and is hit by a car, he can sue and be compensated millions of dollars. He estimates the cost of supporting one brain-damaged soldier to be $4 billion, for a total cost of $35 billion.[46]

Stiglitz and Bilmes also include the spiraling costs for recruiting an ever more reluctant American population to go and fight and die in the war.  Their final prognosis, based on the Congressional Budget Office’s prediction that US troops will be in Iraq until 2015, is a figure ranging from between $1 trillion to $2 trillion.   Stiglitz told Der Spiegel that the CBO’s reported number of $500 billion is a mere fraction of the total cost of the war to the US economy.  Germany and other countries paid for the Persian Gulf War.  This time around, they were not willing.

The projected figure of Stiglitz and Bilmes of the final cost of the Iraq war was far higher than that made by any other economists to date.  The American Economic Association has now come out with a similar figure, stating that Bush’s original figure of $60 was unrelated to reality, and that the real cost will be somewhere between $1 trillion and $2 trillion dollars, depending on the duration of the war.[47]  These figures do not even include the horrendous human suffering that has already occurred and will continue to occur.  It does not even figure into the equation the human costs of the war.  Stiglitz and Bilmes talk about the long-term costs in the US for disabled veterans requiring round the clock care. Nobody has yet written about the long-term costs of the thousands or millions of Iraqi citizens and their offspring who will require round the clock care due to depleted uranium poisoning and other illnesses caused by US weapons.

When asked by Der Spiegel about the war being good for the economy, i.e., whether Poast’s Iron Law of War had validity, Stiglitz replied that World War II was an abnormal situation, since it was preceded by the Great Depression. He said that the war in Iraq is bad for the United States both in the short term and long term.  Those trillions of dollars, he said, could have been poured into research, which would have led to increases in domestic productivity.[48] When queried about the UN putting economic sanctions on Iran, Stiglitz said it would cause a major disruption on the domestic front as oil prices would likely skyrocket to over $100/barrel. At the present $70/barrel, the people are adjusting. At $100/barrel, millions of Americans may be forced to choose between heat and food.[49]

The Iron Triangle of Milex 
What is the rationale for spiraling milex in the face of near non-existent military threats to the United States?  The answer is due to economic and sociopolitical developments, which include the nexus of military Keynesianism, the Cold War, and McCarthyism, in further collusion with capitalist consumerism and the media.  Accordingly we can discuss four issues: (1) the iron triangle of milex, (2) military Keynesianism, (3) the socioeconomic costs of milex, and (4) are there viable, humane alternatives?

The “triangle” term was created by James Cypher in his writings on the military-industrial complex. One side of the triangle is civilian. The second side is military. The base of the triangle comprises the 85-90,000 private corporations that profit from military contracts, which in turn give those corporations either direct or indirect political leverage in Washington, D.C.  They further continually make their presence felt in the Senate and Congress via their lobbyists and political contributions.   It is in the interest of their employees’ job security that these corporations continually push for higher military budgets.  In 1933 the US had 33 percent unemployed workers. World War II removed this problem, with unemployment reaching one percent in 1943.  In World War II, 100 corporations received 60 percent of milex contracts. Since 2000, 25 companies received more than 50 percent of contracts, and the top ten companies received 40 percent of milex contracts. As companies continue to merge, the top ten corporations will see even more than 40 percent. 

The second side of the Iron Triangle comprises the civilian governmental agencies that shape US military policy, which include the President’s office, the National Security Council, the senate, the House Armed Services Committees, the CIA and NSA. 

The third side of the Iron Triangle comprises the military institutions. This includes the Joint Chiefs of Staff, the top men in the Air Force, Army, Marines and Navy, the powerful regional commands (CINCs) and also the veterans’ organizations. Taken together, it becomes easy to understand how the three sides – governmental agencies, civilian agencies, and the corporations, become the most powerful conglomerate in Washington. While always powerful in American history, the present nexus between the weapons industry/military contractors, the military bureaucracy/Pentagon and the politicians/Congress is today at an all-powerful high. In the past half century there has been no serious opposition to this military-industrial complex, barring disputes over which state will get how much to develop a particular weaponry. The difference, however, between 1944 and 2006 is that new weaponry with its vastly complex technology is producing fewer high-wage jobs. Simultaneously, in the past several years some old military bases are being shut down, often spelling economic hardship for many of those towns’ inhabitants.

There is exorbitant waste leading to exorbitant profits for corporations with regard to milex. For example, the Pentagon paid $750.00 per toilet seat to defense corporations. The same item would be available in the local hardware store for under $13.00.  A screwdriver retailing for under $3.00 was sold to the Pentagon for never less than $225.00. A wrench, whose retail price is $4.88, once sold for $1,150 to the Pentagon.  For 21 standard items such as the above, the total retail price was 92.44.  The Pentagon purchased the same items from defense contractors for a total of $10,168.00.   If such obscene profits are made on items like toilet seats and wrenches, one can only imagine the criminal profits on giant contracts for planes, subs, missiles, and bombs. 

At present a core group of corporations get the bulk of Pentagon contracts and then turn around and farm them out to the thousands of smaller companies. All total about three million people are employed in these corporations, with one million civilians on the Pentagon payroll, along with another million paid reservists. How do the American people benefit?  What are 80 percent of the American people getting from the $450 billion of direct and at least twice that of indirect taxes? Waste, useless, unneeded protection, and destruction-causing jobs that could be replaced by jobs serving the public good. Of that $450 billion, a huge percentage is going for sheer profits to corporate owners. The profit rates for milex corporations are two-three times the profits for all other companies, excluding pharmaceuticals.  Considering the “cost-plus contracts” and virtually guaranteed payments for cost overruns, there seems to be no reason for corporations not to continue the present system.

Dowd provides some noteworthy examples of profits. The B-2 or “Stealth” bomber was built in the 1980s with a price of $400 million each, or $4 billion. By 1990 the price was $870 million each, and in 1994 $2.2 billion, for each bomber, and $22 billion in total – more than five times the original price.  The first B-2 had 110,000 defects.  The second B-2 had 80,000 defects.  In 1996 Congress appropriated $44 billion to pay for correcting the defects of 20 B-2s.[50]  Certainly it would seem cost-effective to produce those defects!  In the face of a spiraling trade deficit, Rumsfeld et al are looking to boost that trade balance by sales in the billions in the form of arms exports. At present, the US controls 50 percent of the global arms market, coming to $16.5 billion in 1999. With sales to Pakistan, Tajikistan, Oman, the United Arab Emirates and Egypt, among others, this figure has been on the rise.[51]   While government spending in the form of milex will increase private investments, it is fast eroding monies allotted for the public good, such as health care, education, housing and public transport.

As Stiglitz told Der Spiegel, the only people benefiting from the war in Iraq are Bush’s friends in the oil business, while the American as well as global economy will be paying a heavy price. When the war started, the price of oil was $25/barrel. Today it is $70/barrel. It means record profits for the oil corporations.  The war, according to James Cypher, is about maintaining global hegemony through continued control over energy resources, specifically oil.  At present the US imports 52% of its oil. A prime function of the US military, as Cypher points out, is to control global oil and gas resources. Chalmers Johnson has also pointed out in Sorrows of Empire that most US troops in foreign countries are there to supervise, guard and control oil pipelines.

The Carlyle Group
The most glaring example of the Iron Triangle, along with Halliburton, is the Carlyle Group, whose headquarters are on Pennsylvania Avenue, almost equidistant from the White House and the Capitol building and a few hundred yards from FBI headquarters and numerous government departments. Termed a private equity firm, with more than $13.5 billion in funds as of June 2002, its investments include defense contractors, telecommunications and aerospace companies.[52]  It has a vast global network of businesses and investment professionals who comprise the Iron Triangle. More than any other company, the Carlyle Group epitomizes the corrupt nexus between big business, government and defense. It reeks of crony capitalism and the motto of perpetual war for perpetual profits.  For the high-profile members of the Carlyle Group, war is good for business, and perpetual war means perpetual profits for members.

The company was started innocuously enough in 1985 by former Mariott employee Stephen Norris and David Rubenstein, a lawyer and former Carter aide. They came together on discovering a unique tax break that allowed the Eskimos to sell their business losses to outsiders for cash. Norris and Rubenstein quickly became brokers in these deals and made $10 million in fees while costing the government $1 billion in taxes.  In 1988 Carlyle began to hire political heavyweights, such as former Nixon aide Fred Malek, who had close connections to the Bush family as well as to Saudi royals.  Frank Carlucci and former British Prime Minister John Major joined soon thereafter.

Present Carlyle chairman Frank Carlucci was the former Pentagon chief under Ronald Reagan and today sits on the boards of not less than 32 companies. One of Carlyle’s core members is George H.W. Bush, Sr. Thus we already have in place the nexus of the military-industrial complex when we add George W. Bush to the triangle.  The Group functions like a private retirement center for the most powerful politicians, primarily Republican but recently including a few equally powerful men from Democratic administrations.  James Baker III joined Carlyle immediately on retiring from office.  Other key members hail from big business in Texas – the state with 1.4 million children with no health insurance, a substandard educational system, housing crisis, appalling environmental record and the highest execution rate in America.  Carl Rove is perhaps at the center of the nexus, the man who is intimately connected to all three sides of the triangle. The prime goal of Rove and big business interests in their bringing Bush to the White House was to guarantee the grand-scale deregulation of business, services and industry.[53]  Those who stand to gain the most from this wholesale deregulation are of course the oil executives, as they will have unhindered access to exploration and drilling. In reality, George Bush is not functioning so much as a president but rather is simply a personification of vested corporate interests.  Hence, if we analyze it, the base of the triangle, the corporations, controls both other sides of the triangle - the civilian agencies and the military institutions.

Military Keynesianism
Economist John Maynard Keynes (1883-1946) claimed that the 1930s depression was there to stay, regardless of steps taken, such as manipulation of interest rates or supply of money.  He said that the problem causing the depression was “the inability for private demand – consumption + investment – to purchase a healthy economy’s production at reasonable prices; thus it was essential for the government to provide the needed demand, to be financed through deficit spending.”

How should the government spend money? It could finance projects for social consumption and social investment, such as subsidized housing and education.  It could also finance public projects such as new bridges, highways and dams.  Keynesianism was adopted  by the US and European countries after World War II.  What kept the US economy buoyant after World War II was Keynesianism plus “military Keynesianism.”  The combination of milex and the Cold War caused the US economy to thrive for the next 50 years.  According to Dowd, the recessions that occurred during this period were much shorter and less painful due primarily to milex.  In the capitalist model, recessions are unavoidable. However, their damage can be minimized by milex.[54]  Hence war, be it in Korea, Vietnam or Iraq, is good for business and hence good for the US economy.

What makes war good?  First, there are the actual figures as compared to official statements regarding milex.  Second, there are the indirect economic effects of milex.  In fiscal year 2003, the Pentagon budget was $433.7 billion – almost as high as the post-World War II budget of $449 billion spent in 1968 at the peak of the Vietnam War.  However, this figure ignores numerous “add-ons,” such as foreign military sales, military space programs, veterans’ benefits, military retirement, foreign military aid, and interest on the national debt from past deficits related to military spending.  Let’s take a closer look at milex “add-ons.”

1.                   Interest on the national debt.  At least half our yearly interest payments on the national debt are milex-connected.  (The total interest payments annually are $200 billion plus.)

2.                   Share of the Department of Energy’s expenditures on milex.  This includes nuclear development, which includes military nukes. This comes to minimum $4 billion annually.

3.                   The “Social Security matter.”   In 2002 the federal budget listed $460 billion as Social Security expenditures. However, until 1966 Social Security payroll deductions and benefits were “off budget.”  In 1968, as the Vietnam War expanded, President Lyndon Johnson, while understating milex by $10 billion (roughly $100 billion today) from the Budget Office, further decreed that deductions and benefits be classified as taxes and expenditures, and thus be “on budget.” The reason? Adding a large amount of non-milex expenditures to the total reduces the percentage of milex to the total.  According to Dowd, Social Security benefits should not be classified as “expenditures” as they are fully financed by the beneficiaries. In fact, Social Security payroll deductions have traditionally far outrun benefits, leading the Treasury to borrow billions from the surplus every year, which helps to camouflage the real debt, and also reducing the need to issue bonds. However, when the Social Security surplus is emptied, then bonds will have to be issued to pay benefits. This will increase general income taxation. Hence, increased taxes will be added and deducted from citizens’ paychecks along with social security deductions. The wealthy will not pay these taxes. It is the bottom 80 percent of the population that will be forced to pay these taxes. 

4.                   Hidden milex expenditures – such as foreign aid, the CIA, space research, and “schools” (i.e., “the School of the Americas,” which has more than 60,000 graduates).  The CIA budget is more than $40 billion annually.  It receives $5.6 billion just for keeping secret documents secret.[55] 

Hence we can see that the add-ons “would increase the real level of military spending by more than two-thirds in a given year.”[56] The real figure for fiscal 2003 would be closer to $700-900 billion.  This is not including interest on the debt. The interest is paid to those who hold the debt (in the form of US bonds, etc.).  In the US, the holders are mostly financial institutions / their owners, and the top ten percent of the population.  Thus, the mere accumulation of debt from milex creates even greater inequality in a system of already great inequality.

Alternatives to Milex
Do we have alternatives to waging perpetual war in Iraq?  The war has already cost the US government $250 billion in direct costs to date, and more than 180,000 civilian lives in Iraq, plus more than 2,000 dead Americans, and thousands of critically wounded on both sides.  The independent media reports recently that far more than 2,000 US soldiers have been killed, with the real numbers hidden from the American public. Could the United States government have used that money in alternative, more constructive ways – to benefit the people of America and of the world? 

The National Priorities Project provides many alternatives.  The money could be used instead to send 36 million children to a year of Head Start.  It could provide health insurance to 160 children who presently have no health coverage in America. The money could hire four million schoolteachers for a year. It can build 2.5 million homes.  It would provide immunizations to all the children of the world. This huge amount of money could be used to provide university education to thousands of young people who presently have no ability to attend college.  Public transportation in American cities is obsolete compared to cities like Tokyo, London, Berlin and Mumbai. Money could be spent to update those infrastructures and to build new transportation systems where none presently exist.  With oil prices approaching $100/barrel, this will become mandatory.

But what is happening?  Bush has given a budget to Congress upping the war ante to $440 billion. Simultaneously it strips precious funds from social services in the US and from development programs in developing countries.  John Pilger wrote on February 9, 2006 about the US national debt that exceeds $8 trillion dollars, and about the trade deficit of more than $600 billion dollars, rendering the US dollar a worthless piece of paper.[57] Both figures are unprecedented in American economic history, even taking inflation into account. The US military has at present more than 700 bases, with more continually being built in the Middle East, Russia and adjacent countries. These bases along with America’s war are being funded by creditors, primarily China. 

Iran
Blair and Bush are on the verge of making their next inhuman blunder, this time against the ancient civilization of Iran.  The reason?  It is not about nuclear weapons. Iran has no nuclear weapons. The reason is money. Economics. On March 20^th, 2006, Iran was scheduled to shift its petrodollars into a euro-based bourse, complete with a grand opening ceremony on the island of Kish, a trade-free zone off the coast of Iran.  To maintain the value of the US dollar, it is crucial that it remain as the oil fiat currency. If Iran dares to breaks the dollar dominance, as Saddam did in 2002, then Iran will surely suffer the same fate as Iraq – invasion by the US.  The US will never allow Iran to switch the fiat currency to the euro.  If Iran begins to trade in euros, and causes the world’s central banks to shift their reserve holdings to euros, effectively dumping the US dollar, the economic consequences to the US will be catastrophic.  

According to Pilger, the Pentagon does not plan to destroy all of Iran (from 30,000 feet high dropping nuclear “bunker-busting” bombs). It aims to control the strip of land called Khuzestan that runs alongside the border with eastern Iraq.  Khuzestan contains 90 percent of Iran’s oil.  In addition, the US would take over the geo-politically strategic Strait of Hormuz, through which oil tankers move out to the rest of the world. 

The Laboratoire europeen d’Anticipation Politique Europe 2020 (LEAP/E2020) estimated that the week of March 20-26, 2006 would be one of immense crisis – paralleling the political crisis of the Fall of the Iron Curtain in 1989 and paralleling the economic and financial crisis of the Great Depression of 1929. Two actions would trigger this crisis: (1) the decision of Iran to open the first oil bourse priced in euros on March 20, 2006, which will be available to all oil producers in the world; and (2) the decision of the American Federal Reserve Bank to stop publishing M3 figures from March 23^rd, 2006 onwards.  M3 figures provide the most reliable indicator of the number of dollars circulating globally.[58]

LEAP/E2020 researchers identified seven converging crises that may culminate in the final political, financial, economic and likely military crisis. They are (1) loss of confidence in the dollar; (2) the American budget deficit and trade deficit; (3) the oil crisis; (4) loss of global confidence in the present US administration; (5) the Middle East crisis; (6) lack of any clear global governance; and (7) a European governance crisis.[59] 

However, on March 21^st Iranians celebrated the Iranian New Year, and the publicized opening ceremony for the bourse in Kish did not take place, due to stated “technical glitzches.” 

Stopping Milex
The CostOfWar.com numbers are ticking away. As of May 2, 2006, they read: $277,736,757,456 – approaching $278 billion.[60]

We can learn from the Vietnam war.  In 1967 opinion polls showed that a little more than half of Americans had decided the war was a mistake. In 1968 this number grew, particularly when CBS news anchor Walter Cronkite reported on public television that essentially, the war is unwinnable.[61]  Growing domestic dissent helped considerably to end the war. While millions of Americans deplored the anti-war protests, and while President Johnson started a public relations campaign to tell the people how great the war was going, the business community had already begun to withdraw their support, due to an economic stalemate on the domestic front. War no longer seemed that good for the US economy.  The good years were from 1952-65 when near full employment prevailed, there was low inflation and the trade balance was positive. This scenario changed rather drastically by 1967-68. It was Clark Clifford, Johnson’s new Secretary of Defense, who told Johnson that the Vietnam War is no longer tenable.  Wall Street no longer supported the war.

Today American business leaders are losing their enchantment with the war economy.  As Stiglitz and Bilmes point out, the war has not decreased but increased global insecurity. It has caused a sharp rise in oil prices.  The only businesses to benefit are a small handful of energy companies and defense contractors such as Halliburton and Carlyle.   Hence growing corporate dissatisfaction coupled with antiwar feelings running at more than 60 percent as of March, 2006 indicates that it is time for the government to pull out of Iraq. Tragically, as in the case of Vietnam, it may be years before the White House decides to do so, despite that remaining in Iraq is now in direct opposition to the will of the American people.  Rather, indications are that Bush’s regime has no intention of pulling out, as evidenced by construction of 106 new permanent military bases, including six hi-tech “super bases” in Iraq.[62]  Some analysts are in fact predicting that Bush will take his “commander-in-chief” powers to new heights and declare war on Iran just in time to boost mid-term elections for the Republicans. Exerting unprecedented powers will cause massive domestic dissent, which will give him the excuse to declare martial law.  Before all these possibilities become reality, Peterson advocates that we work hard to impeach the president, who has waged two illegal wars of aggression in the past five years. The US Congress can impeach, convict and remove any US president who commits a war crime.  Individual states can also impeach the president. To save our out-of-control economy, and to save our civil liberties, this would be the next logical step to bring the war to an end, and to start America’s reconstruction of a battered, shattered economy. 

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